Bonds sink post-Powell; US equity futures slip: markets wrap

A selloff in bonds deepened Tuesday and US equity futures wavered after Federal Reserve Chair Jerome Powell struck a more hawkish tone on the central bank’s campaign against high inflation.

Treasuries extended losses and Australian and New Zealand debt slid after short-dated US yields Monday posted one of the biggest daily climbs of the past decade. The gap between five-year and 30-year US yields is around the smallest since 2007, a sign of worry that Fed tightening will sap the economy.

US and European futures dipped, while Asian stocks rose partly on a climb in export-reliant Japan amid a weaker yen. Hong Kong pushed higher, bolstered by Alibaba Group Holding Ltd.’s ramped up, $25 billion share buyback program.

Powell said the Fed is prepared to raise interest rates by 50 basis points at the next policy meeting if needed. The central bank hiked by a quarter-point last week and signaled six more such moves this year. The dollar advanced.

Oil’s rally continued, with Russia’s war in Ukraine nearing the one-month mark and no conclusion in sight. There are signs the European Union may be edging closer to a ban on Russian crude imports to punish Moscow for its invasion.

The trajectory of bonds is a focal point for investors fretting about a growth slowdown or even a recession. High inflation, stoked by commodity-market disruptions due to the war, has increased pressure on the Fed and some other key central banks to tighten monetary policy.

“For the long term, 2.3% on the 10-year is not such a high figure at all,” Linda Duessel, senior equity strategist at Federated Hermes Inc., said on Bloomberg Television, referring to US Treasuries. “What spooks the market is when you have very quick moves, such as what we’re having now.”

Derivative traders Monday priced in about 7.5 quarter-point rate hikes at the remaining six Fed meetings this year, effectively making provision for more than one half-point rise.

Stocks resilient

Stocks in Asia on Tuesday and the US a day earlier appeared to shrug off concerns that Fed tightening and rising yields point to a tougher outlook.

“If Powell is reinforcing that they are going to address inflation — that they’ve made mistakes, that their expectations of inflation were incorrect — just admitting that, and saying that we’re ready to do everything it takes, is definitely reassuring for equity investors,” Erin Gibbs, chief investment officer at Main Street Asset Management, said on Bloomberg Television.

Duessel from Federated Hermes said the gap between the three-month and 10-year tenors in the Treasury market is still steeply upward sloping, supporting the view that the US economy remains strong.

While the Fed is tightening, expectations are growing that China will takes steps to support economic expansion.

The nation’s government said it will step up policy support for the economy and capital market, reiterating earlier vows to shore up battered investor confidence.

Here are some key events this week:

• European Central Bank President Christine Lagarde among central bank speakers at the BIS innovation summit, Tuesday to March 23
• EIA crude oil inventory report, Wednesday
• Bank of England Governor Andrew Bailey, Fed Chair Powell speak at BIS panel, Wednesday
• UK Chancellor Rishi Sunak’s “Spring Statement” on the budget, Wednesday
• US President Joe Biden attends NATO emergency summit in Brussels, Thursday
• Eurozone Markit PMIs, Thursday
• US initial jobless claims, US durable goods, Thursday

Some of the main moves in markets:

Stocks

• S&P 500 futures slid 0.2% as of 6 a.m. in London. The S&P 500 was little changed
• Nasdaq 100 futures shed 0.2%. The Nasdaq 100 fell 0.3%
• Japan’s Topix index increased 1.1%
• Australia’s S&P/ASX 200 Index rose 0.9%
• South Korea’s Kospi index rose 0.9%
• Hong Kong’s Hang Seng Index rose 2%
• China’s Shanghai Composite Index added 0.3%
• Euro Stoxx 50 futures fell 0.4%

Currencies

• The Japanese yen was at 120.33 per dollar, down 0.7%
• The offshore yuan was at 6.3741 per dollar
• The Bloomberg Dollar Spot Index rose 0.3%
• The euro was at $1.0982, down 0.3%

Bonds

• The yield on 10-year Treasuries rose four basis points to 2.33%
• Australia’s 10-year yield jumped 14 basis points to 2.72%

Commodities

• West Texas Intermediate crude rose 2.5% to $114.90 a barrel
• Gold was at $1 936.99 an ounce